Exploring New Product Development Decisions and Risk Tolerance in Complex Environments

Managing the search for innovative new products is commonly regarded as a key source of competitive advantage, especially in complex new product development (NPD) environments. At the same time, Kauffman's NK model of complexity has gained growing acceptance in the management science literature as a means to model complex decision processes, such as NPD, in which there are conflicting constraints that often lead organizations to arrive at locally optimal decisions. Previous articles employing the NK model have assumed (1) that organizations can explore possible innovations with perfect knowledge (at no cost) before committing resources to an implementation and (2) that organizations only implement changes that result in higher levels of fitness. Little is known about how relaxing these somewhat unrealistic assumptions may affect the search for innovative new products. This article begins a systematic exploration of how varying degrees of risk tolerance affect overall performance of the innovation search process. The primary contributions of this paper are (1) to cast and synthesize the challenge of innovation management in the context of complexity science (2) to introduce a model of innovation search, incorporating risk tolerance and cost-performance tradeoff measures and (3) to report results observed from the model and discuss possible implications for the management of innovation.